Is the fast casual market saturated or still absorbing?

April 4, 2013

By Daniel Campbell, research and development assistant, Food IQ

As consumers, we love the fast casual market, we almost have to. Every strip mall you go to, every new development in town and every modernization of a dying section of the city has at least one, maybe two, probably three fast casual restaurants to choose from. The decisions we have to make on a day-to-day basis are already fairly tough, and the addition of deciding between Panera, Chipotle or Panda Express seems like a chore, nearly impossible until someone decrees a destination.

As an industry, when do we get to a point, where we decide there is no need for another fast casual restaurant? Or is attempting the next biggest thing, part of the excitement? These, and other questions are worth ruminating as we approach a crowded marketplace. Let's breakdown the segment and have a look at what questions we need to be asking. According to Darren Tristano, of Technomic, the FC segment accounts for nearly $22 billion in sales. There are 344 FC chains that Technomic tracks, saying they believe that 95 percent of the FC market are chains. Of those, the top 5 (Panera, Chipotle, Panda Express, Zaxby's and Five Guys) make up 40 percent, or $7.56 billion of the sales in the top 100. Of the top 50 restaurants across all segments, six are FC, adding Jimmy Johns to the list above. So how does one penetrate a market that is already saturated with big name players, and others that are quickly rising?

Is it worth finding a new niche? Technomic reclassifies the FC segment into nine sub-segments (in order of sales, with number of concepts indicated in the top 100): Mexican (20), Bakery/Café (18), Other Sandwich (16), Hamburger (11), Chicken (nine), Pizza (seven), Asian/Noodle (six), Salad (four), and Specialty (nine). Specialty, or other, makes up 9 percent of the top 100. Are these the future movers and shakers? One of those is Dickey's Barbecue Pit. Not only are they No. 26 on Technomic's Top FC restaurants, but they are one of two BBQ concepts (the other being Shane's Rib Shack, No. 67) on the list. Is it that BBQ is the next cuisine to flood the market with its delicious, smoky, and saucy take on the FC world?

What about No. 30 on the list: Fazoli's. Fazoli's has been around for 25 years, so obviously not a new concept, however, being the only Italian concept on the list has to say something, right? BBQ and Italian have been an American staple for years, so do they have what it takes to launch a new sub-segment? Or is it some other type of cuisine all together? Coming in at No. 72 is Daphne's California Greek, which has been around since 1991, so again not quite a brand new concept. However, it is the only Greek restaurant on the list, and how many cities have Greek eateries? Some, but compared to Italian or BBQ options, not enough! Is Daphne's California Greek the next FC cuisine to abound in the market? Can it compete with the other giants?

Is it offering a different message? Do we need another burger joint that claims something new and exciting in how they prepare or serve their food? There are 11 such places on the Top 100 list that are trying to do just that. They all serve burgers and fries, so how does each capture their customer's dollar? Maybe the 20 Mexican concepts have it figured out by re-inventing how we look at Mexican food, or attempting a more authentic take on their offering. As the category king on the Top 100, would you expect the same thing from each? Of those 20 concepts, seven have the word "Grill" somewhere in their name. Are they each adding their own flair to help differentiate themselves? Perhaps, having 20 different types of Mexican FC concepts is what Americans crave. ShopHouse Southeast Asian Kitchen tries to immerse their customers by having a Coca-Cola machine, still identifiable by its colors and design, that's written in Thai. Opinions change, so maybe offering more cage-free, antibiotic-free, free-range or locally sourced/produced items than what your competitor offers means you'll succeed. It must be the recycled tray, or the 100-percent post-consumer recycled packaging. Energy efficient lighting? Environmentally friendly chemicals? The list goes on and on as to what makes each unique. Is it the message or the delivery of the message that offers a leg up?

Is it differentiation in product offerings? According to Mintel Menu Insights, "premium" menu mentions has risen from 69 in 2007 to 138 in 2012. So does literally adding "premium" in front of your offerings mean you'll become one of the top 20 FC restaurants in 2020? Panera, the No. 1 FC chain on the list does just that and more. Not only do they have a line of "Premium Signature" sandwiches, (meaning better ingredients, better for you) but they offer antibiotic-free chicken and roasted turkey; not just regular bacon, but Applewood-smoked; and of course reduced-fat olive oil mayo. Is it just their food? Or does "Live Consciously, Eat Deliciously" affect their whole brand? In a new commercial, Panera talks about starting each day with baking fresh bread, talking to their farmers and chefs and delivering food that's trustworthy and as delicious as their bread. Should they end there? At the end of the day, donate all the leftovers to help communities? Of course, and to think "All this started with a humble loaf of bread." Is this what drove Panera to the top spot?

Perhaps American's want something new and exciting like Daphne's California Greek. Or, is it they want a concept that gives them something different and out-of-the-ordinary? Perhaps they choose to patronize places that are socially conscience in their dealings. Unfortunately, there doesn't seem to be a clear answer, and new players entering the FC segment need to decide for themselves what they can do better, faster or more exciting. What we do know can be adapted from Howard Moskowitz, "There is no perfect FC restaurant, only perfect FC restaurants."

Daniel Campbell is a culinary innovator on the Food IQ culinary team. His experience in the restaurant industry, passion for local food sourcing, and knack for experimentation in the kitchen, give Food IQ clients an advantage in the development of unique menu ideas.